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200! 2002

Articles %ase Analysis

Metamorphosis o& a 'lobal (usiness 'iant - Amit Chandra Majumdar Given the rapidly changing global market conditions, companies cannot remain content with a closed organization and inward looking strategies. They must adopt new, integrated approaches for producing continuously improved business results. The P&G restructuring story is a unique saga of the downfall of a global !"G giant from its leadership position and its subsequent re#uvenation. $s the case details, this re#uvenation was brought about through well%planned turnaround strategies that focused on growth and development. $fter about &'( years of growth through multinational operations and business acquisitions, P&G found itself in various problems in the late &))(s. *t recorded declining growth and a reduction in profits and market share. *t was high time to take a look at the problems and become aware of the need for a strategic overhaul. +hat idea does one get about the state of affairs prevailing at P&G, +hat caused such a serious setback in its overall operational results and profitability, The answer lies in the fact that the company had become burdened with conservative organization plans, rigid practices and outdated procedures. *t is well understood that unless strategies, plans, programs and their implementation are fle-ible enough to ad#ust with the dynamic market conditions, the company would sooner or later land up in a mess. P&G however, read the signals emanating from its poor results well in time. *t was indeed a bold decision to go in for such a comprehensive restructuring plan. The restructuring e-ercise, named ./rganization 0((1., was put in place in 2uly &))) to facilitate accelerated growth, innovation and development. The program, spearheaded by two successive "3/s, 2ager and 4afley, encompassed all the crucial areas for rebuilding P&G. The strategic premise is quite clear and understandable5 unless a total overhaul of the e-isting organization and business culture coupled with strong focus towards all round performance improvement is not achieved, the ob#ective of long%term recuperation of the dwindling business heath would not be fulfilled. 4ooking at P&G6s past performance, it would be clear that the problems were5 haphazard planning, unsound product mi- designs, lack of cost consciousness, unwieldy organization structure, outdated systems and procedures and an organization culture incompatible to changes. Therefore, an integrated restructuring program was indeed a must to infuse new blood in the organization. Ma)or thrusts o& *Organi+ation 200#* The focus areas were5 business growth, organization development, innovative product portfolio, faster decision%making process, principles of cost reduction and savings, re%engineered work processes, use of technological tools and reinventing of organization culture. The restructuring program encompassed both micro and macro aspects to bring out P&G from the bind. $ number of bold conceptual

changes were incorporated in the programthe most notable amongst them being changing the organizational structure from Geographically%based 7usiness 8nits to Product%based Global 7usiness 8nits 9G78s:. These were further strengthened and integrated with the regional market development organization. The restructuring program also addressed important areas such as ma-imizing the business potential of P&G6s entire product portfolio. This was done in a way so as to offer customized global programs that allowed P&G to tap business opportunities of local markets. ;tandardization of work processes greatly helped to embark upon ma#or initiatives for rationalizing complicated product lines, bringing in motivation for product development and changing the outdated worldwide product marketing system. $ significant revamp of corporate management and areas relating to customer satisfaction and human relations aspects was also undertaken. *t was not possible for a large conglomerate like P&G to disregard the importance of economies of scale, customer satisfaction and speed of service availability. $ll these necessitated an integrated approach for key business processes and benchmarking with best practices of other global corporations. ;uch decisions included in the restructuring program helped in improving and strengthening functional capabilities of all the operations. 7efore the restructuring, the key management function of effective and speedier handling of huge amount of data generated was not given enough attention. 8nder ./rganization 0((1., P&G embarked upon a full%scale introduction of *T%enabled and knowledge%based management services. This resulted in changes in key areas of product development, new product launches, marketing and distribution logistics, supply chain management, introduction and adoption of technologies, inventory management, and business and customer relations services. These initiatives resulted in a phenomenal decline in new product concept testing e-penditure from <01,((( to <0,1(( and in testing time from two months to two weeks. *ntroduction of innovative measures like =ey $ccount >eplenishment ;ystem 9=$>;: for automatic ordering, +eb /rder !anagement for *nternet%based customer ordering and quicker distribution as well as starting of new divisions like ?P&G *nteractive !arketing6 for customer interaction and feedback and ?P&G $dvisors6 for development of new products in collaboration with customers and installation of several websites were all directed to accelerate growth as well as to introduce new, faster, market%friendly and customer%focused business strategies. +hatever may be the changes made on the operational front, there is no denying the fact that it is the management which acts as the main catalyst in the success or failure of such changes. *t was, therefore, inevitable that P&G6s restructuring included a comprehensive overhaul of its corporate culture to take the entire organization out of the conservative, closed, risk%averse, sluggish, stereotyped and hierarchy%dependent mode. The idea was to become a highly goal%focused, fast%responsive, high%performing, techno%oriented, non%discriminatory and aggressive modern organization that was able to confront and sustain the challenges of market. P&G believed that changes and new focus on philosophy like ;tretch, *nnovation and ;peed 9;*;: in organizational culture should be made all pervasive. *t also believed that it should permeate across all management levels all over the world. Thus, ?Pro#ect Pride6 was introduced, which included decisions regarding fle-ible dress code, transforming the office set%up from a hierarchical to non% discriminatory one, making fast office communication tools available. @ere, the intention was to re%orient the erstwhile corporate culture to a more vibrant, open, assertive and high performing one. The roles of the two "3/s present two different approaches, attitudes and leadership styles. The formal launching of ./rganization 0((1. program took place during the tenure of 2ager who initially tried for some mega acquisitions. @aving failed to do so, he concentrated on developing new products. 7ut this weakened P&G6s performance because of diversion of ma#or resources towards these new

products. 2ager6s strategy of global product marketing under uniform brands did not click either. 3fforts to revamp the organization failed to bring the intended results. *nstead, they created additional organizational problems and failed to motivate people to become a partner in the change management process. Think, for instance, actions of large scale abrupt transfers of 0((( 3uropean employees to Geneva, relocation of 0(( $sian employees to ;ingapore and peculiar new unrealistic reporting relationships. ;uch moves had a negative effect on P&G6s stock, which declined from <&&A in 2anuary 0((( to less than <)( in ebruary 0((( and later to less than <B( wiping out <C( bn in market capitalization. $lso, the net profit declined by &DE in the third quarter of 0((( indicating a serious lack of operational control. 4afley handled the affairs in a different way. @e used a two%pronged strategy5 thrust on ma#or markets and leading brands on the one hand, and working on new product line e-tensions including disbanding of several brands on the other. 4afley also emphasized on cost reduction for long%term growth which was achieved through changes in management structure, #ob reductions and revenue growth. !anagement teams were reinvigorated and a strong boost was given to the role of women in the organization. *T%enabled working initiatives were strongly and continuously strengthened to obtain the cutting edge in business information management leading to significant benefits. The complementary program introduced by 4afley along with ./rganization 0((1. aimed at enhancing competitiveness and making P&G seize opportunities to restore long%term health and growth. The P&G restructuring story is all about the metamorphosis of a giant global organization under dynamic and changing business environment. *n my opinion, there was no way out for the management than to embark upon a program like ./rganization 0((1.. +hatever may be the pitfalls in different stages of implementation of the program 9under two different "3/s:, the ob#ectives remained the same. That is, to rebuild P&G and turn it around with focus on long% term growth. *t was a great stridetimely and challengingF *t may not be necessary for us to be too much concerned about the management styles, strategy planning, and methodologies of e-ecution and roles of the individuals concerned. /ur concerns should rather be on the content and quality of the restructuring program, its implementation and whether the e-ercise could indeed result in achieving the ob#ective. To this end, the ./rganization 0((1. program seemed to have been successful as it was evident that three ma#or business segments7aby "are, abric and @ome "are and @ealthcarewhich lost market shares in the &))(s, registered increased revenues and market share by ;eptember 0((0. Gew acquisitions helped net a &BE 9<& bn: growth in net earnings within the aforesaid period. The global workforce was downsized as planned which made P&G more cost competitive. The share price rose 1DE to <)0 per share by 2uly 0((', as against a fall of '0E in ;&P6s 1(( inde-. The case is an e-cellent live e-ample of the efficiency and success of an effectively implemented restructuring program involving the organization, its work processes, its culture and its people. The author is head of the Pgdbm and Pgdhrm Departments, Indian Institute of Social Welfare and Business Management, Kolkata. H The *" $* 8niversity Press . $ll >ights >eserved.

%ase Analysis
,-''s .ean an/ 0hin 'amble K Rangarajan ,relu/e $round <C( bn in sales, '(( plus brands, &C( plus countries and &((,((( plus

employees define the !"G ma#or P&G. The end of the 0(th century and the beginning of the 0&st century brought bad news for this centurion. Till the &))(s, the organization showed e-cellent growth, attained due to globalization stimulants like common customer needs, global customers, the presence of lead countries and transferable marketing messages. The desire to obtain economies of scope from marketing, consumer needs and research drove the company6s growth. @owever, as markets become more global, consumers are also becoming more sophisticated, demanding products and services which are differentiated rather than standardized. This pressure made P&G get into unmanageable, complicated product lines. /ther functional and operational problems followed soon after. The problems were aggravated by the mismatch between market pressure and an ageing organizationleading to a cultural misfit. This mismatch in turn, led to a lack of innovation in a demanding global market. The realization of the above issues led to the ./rganization 0((1. program. DJ's *Organi+ation 200#* The .organization 0((1. program has two elements, viz., structural reforms and standardization of work process. The key elements of this program and their impact on organization are shown in table &. The measures undertaken by 2ager are definitely for the betterment of P&G. @owever, the momentum and timing of such measures appear to be a little fast and taken in a hurry. *f we look into the concepts underlying restructuring strategies, downsizing as an alternative essentially results in reduced labor cost in the short%term. 7ut, this also has the danger of lower performance and loss of human capital in the long run 9>efer igure *:. This has been rightly addressed in ./rganization 0((1., which aimed at creating a participative and informal work culture. @owever, the other alternative of down%scoping which is also taken up as a restructuring strategy seems to have misfired and has ignored the volume% generators like Pampers etc.

0able 12 *Organi+ation 200#* ,rogram Measures I+ider span of control I>etrenchment 3mpact I>eduction in organizational layers I4ean and thin workforce I3ach product category is brought under a Global 7usiness 8nit 9G7/: I&(( profit centers to seven profit centers I;peedy response to local requirements of the market

Geographical focus to
Structural 4e&orms product organization I!arket development organization IGlobal 7usiness ;ervices 9G7;: I"orporate unctions 9" :

Stan/ar/i+ation o& 5or6 ,rocess

I;peedy decisions, G7; I+eb%enabled supply chain and " as a staff authority and data warehousing helped the process I ormation of innovation I"reation of more

teams for conceptualization participative and informal of product ideas work culture I;pread of pre%market test I*ncreased use of *T for globally market access and customer service I8se of internet for I*ncreasing the overall distribution channels 9=$>;: motivation level of workforce I8se of *nternet distribution system 9+/!: I8se of reflect.com for understanding customer needs Ne7 lea&lets o& .a&ley in *Organi+ation 200#* The ./rganization 0((1. program introduced by 2ager was irreversible and 4afley had no choice but to accept it and look into better ways of carrying it further. Thus he concentrated more on issues such as loyalty and building the confidence of employees. $s part of correcting the down%scoping alternative pursued, he tried to improve performance through outsourcing the manufacturing of products. This initiative helped P&G reduce its costs, apart from reducing the long%term @> costs through downsizing. The focus maintained by 4afley can be seen through the action%based model of the *ndustry 4ife "ycle 9>efer igure **:. irms in the mature stage in developed markets emphasize market power actions which focus the firm6s attention on offering product lines that are profitable and producing these products in an efficient manner. $s has been followed by P&G, process innovations are emphasized more, because they maintain dominance through cost%efficiencies and the quality of the product manufactured and provided to customers. The strategic option e-ercised by 4afley through focusing on core brands, core customers and core flow has helped P&G to arrest the slide in revenue and was also reflected in the bourses. @owever, this may be short%lived for this global player. 3-tending the same strategy of focusing on bigger, but fewer core products to that sustainable level of performance in the log run will be risky. 0he 5ay Ahea/ P&G should rise to the reality of fast%cycle markets on the one hand, and the markets in emerging countries, platform countries and key countries on the other. $ccordingly, balancing should be done for coming out with standardized and adaptive value propositions. The product strategy and segmentation strategy should reflect the needs of global as well as national markets. *n this conte-t, for ensuring long%term, sustainable performance, P&G should consider5

;tandardization of products, while adapting the elements of the marketing mi- to reinforce the product strategy. ;tandardization of one key element of the marketing mi- while adapting the others.

@aving lived and worked in other countries, truly global "3/s should be sensitive to the impact of culture on performance, but sometimes, surprisingly, they are not. Getherlands born 2ager6s short%lived run as "3/ of P&G was an ob#ect lesson in moving too fast for a culture. The lesson here for 4afley is to maintain a continued focus on work culture to ensure that the employees remain motivated. Thus, he should revisit the strategy of core products and mature markets and then proceed further in strategizing the culture to sustain P&G6s growth in the coming

years. The author is associate professor, Indian institute of foreign trade II!T", #e$ Delhi. H The *" $* 8niversity Press . $ll >ights >eserved.